Free Markets, Free People


Economic Statistics for 1 May 12 (Updated)

The following statistics were released today on the state of the US economy:

Despite the general indications that the economy is slowing, the ISM Mfg Index rose to 54.8 from 53.4 in April.

ICSC-Goldman reports that bad weather dragged retail sales down -0.3% for the week, but up 4.2% year over year. Redbook is even worse, showing a steep y/y slowdown to 2.9%.

March construction spending was unexpectedly poor, rising only 0.1% over February, and 6% over 2010.

US auto sales for April came in at a 14.4 million annual rate, unchanged from the rate in March.

Dale Franks
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Economic Statistics for 30 Apr 12

The following statistics were released today on the state of the US economy:

Personal income rose 0.4% in March, while personal spending rose 0.3%. The PCE Price index, an inflation measure, rose 0.2%. One a year over year basis, personal income rose 3.2%, personal spending rose 4.0%, and the PCE Price index rose 2.1%.

The Dallas Fed Mfg Survey shows slowing growth, with the business activity index falling to -3.4, while the production index fell to 5.6.

The Chicago PMI shows growing business activity in the Chicago Area, with the Business Barometer Index at 65.2. This report is widely seen as a precursor to the national PMI due out tomorrow, but there is often substantial divergence between the Chicago and nationwide reports.

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Imagine a president who puts the needs of the country before a political agenda

Jeffery Folks at American Thinker begins his article with:

Imagine a president who gets behind drilling, welcomes the cutting-edge technology of companies such as ExxonMobil, and offers generous 15-year tax breaks to ensure that new drilling projects move forward.  That’s the kind of energy policy America needs in order to achieve energy-independence.

I’d love to imagine that.  In fact and unfortunately, we have a president who does exactly the opposite. 

If you want someone like Folks is wishing for, you’ll have to go to Russia:

Unfortunately, it’s not Barack Obama who’s behind those positive energy policies; it’s Vladimir Putin.

As Russian president-elect, Putin has made it clear that he intends to open his country’s arctic and Black Sea regions to drilling.  The potential is so great, and the necessary investment so immense, that even Russia’s giant state-run oil companies, Rosneft and Gazprom, lack the resources and technology to proceed.  So, with Putin’s blessing, Rosneft and Gazprom have entered into joint-production agreements with Exxon, Italian major Eni, and other Western companies.  The stakes are huge — not just for these companies, but for the Russian economy.

The arctic and Black Sea fields being jointly developed by Rosneft and Eni contain an estimated 36 billion barrels of oil equivalents.  Those under development by Rosneft and Exxon, which may ultimately require an investment of as much as $500 billion, contain estimated reserves of 36 billion barrels in the arctic Kara Sea fields alone.  (Total recoverable arctic reserves have been estimated at 134 billion barrels of oil equivalent but will likely go higher as exploration proceeds.)  In addition to the arctic and Black Sea fields covered in the Exxon and Eni agreements, president-elect Putin has expressed an interest in the possibility of joint ventures to develop vast Siberian tight shale formations.

The US has an incredible amount of natural resources including huge reserves of oil and natural gas.  We’re already the number 3 oil producer in the world.  And guess who actually leads the world with recoverable fossil fuel reserves?   Yes, that would be the US.  Imagine an energy policy that made extraction of that fuel a priority?  With aggressive exploration and drilling (as well as approval of the Keystone XL pipeline) we could have a 92% secure liquid fuel sources by 2030.  Not to mention, in a time of high unemployment, a jobs bonanza.

But what do we get? 

Not that, that’s for sure.   We instead get a president who talks about an “all-of-the-above” energy policy while his actions belie his claims.  He’s turned lose a executive agency (EPA) on the fossil fuel industry that has already been slapped down numerous times by the judiciary for over-reach.  Drilling and permits on federal land have gone down dramatically.

In an oil market that has seen supplies tightening and prices going up, his administration has done everything to keep it that way.

And voters aren’t happy with his performance at all.

If this is going “Forward”, I’d hate to see backward.


Twitter: @McQandO

Economic Statistics for 27 Apr 12

The following statistics were released today on the state of the US economy:

The Commerce Department’s initial estimate of 2012 first quarter GDP is a below-trend—and lower than expected—2.2% annualized rate of GDP growth, down sharply from the 4Q 2011 rate of 3.0%. The GDP price index rose 1.5%. The GDP decline is mainly due to a 3% drop in government purchases. Strength was largely in personal consumption expenditures, which rose 2.9%.

Consumer sentiment is inching up, with the index rising to 76.4 for the month.

The Employment Cost Index rose 0.4% last quarter, mainly due to wage increases, though the increase is down from last quarter’s 0.5%. Year over year, the ECI is up 1.9%.

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Economic Statistics for 26 Apr 12

The following statistics were released today on the state of the US economy:

Initial unemployment claims were 388,000 in the latest week. Last week’s number was revised upwards again, this time by 3,000 to 189,000. The 4-week moving average rose by 6,250 to 381,750. Analysts were expecting only 375,000 claims this week, so the number was well above expectations.

Growth eased in the Kansas City Fed district over the last month, as the Manufacturing Index fell to 3 from last month’s 9.

In a more positive sign for the economy, the pending home sales index rose 4.1% to 101.4.

The Bloomberg Consumer Comfort Index fell to -35.8 in the last week from -31.4 the previous week.

The Chicago Fed National Activity Index shows an overall weakening in the economy, falling to -0.29. The 3-month moving average fell to 0.05.

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Sen. Democrats can’t produce a budget, but they can still find ways to raise taxes and redistribute income

The latest vote buying scheme?  If you’re a small business man who owns an S-chapter corporation (that would be me), read it and weep:

Congressional Democrats and the White House have agreed to pay for a bill to freeze student loan interest rates for a year by raising taxes on so-called S Corporations, according to a top Senate Democrat and senior House and Senate aides, but Republicans said the tax increase may ensure the bill’s defeat in the Senate.

“We’ve got it worked out,” Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin, D-Iowa, said on Tuesday of the formula for paying for the legislation. Harkin spoke after Senate Majority Leader Harry Reid, D-Nev., said he will introduce within the next day a bill to prevent interest rates from doubling to 6.8 percent on July 1. That sets up Senate action on the bill next month after senators return May 7 from a one-week recess. A spokesman for House Minority Leader Nancy Pelosi, D-Calif., said she and House Education and Workforce ranking member George Miller, D-Calif., also signed off on the proposal.

The bill will require S Corporations with three or fewer shareholders who declare income of at least $250,000 a year to pay employment taxes, according to Harkin and Democratic staffers involved in the talks. An S Corporation is a specially structured entity that pays taxes under rules that allow earnings or losses to be passed through shareholders, reducing federal tax payments.

That’s right, S corps would be taxed to help keep interest rates on student loans down.  Remember, the government now owns student loans. 

And what have we looming right after the July 1st interest rate increase that might be hurt if that happens?

Why the November presidential election, of course.

Any wonder why the White House and Democrats are all for screwing small business to buy off a critical constituency?

It is no different in the category of desired political result than the $8 billion in spending HHS would do at the behest of the White House to slide the Medicare supplemental cost increase seniors will undergo from before the election to after.

This is outrageous.  This is blatant vote buying and income redistribution to “pay” for Obama’s re-election.  This is the essence of the Democratic ideology laid bare and the deviousness  and immorality of their methods exposed for all to see – if they’ll see it.

No one makes anyone take out a student loan.  And although it may be expensive, decades worth of those who’ve gone before have acted like adults and paid off the obligations they agreed too.

Now, if the Democrats get their way, it will be the job of those who’ve risked all to open a small business and built it with sweat equity and delayed gratification to pay to keep government controlled interest rates down?

“I don’t think anybody believes this interest rate ought to be allowed to rise,” Senate Minority Leader Mitch McConnell, R-Ky., said Tuesday. “The question is, how do you pay for it? How long do you do the extension?”

Republicans are “in the process of discussing it among ourselves,” McConnell said.

Don’t even think about it Mr. McConnell!  If, as Obama has said, it is wrong to raise taxes in an economic downturn, it is ALWAYS wrong.  And if you think we’ve turned the corner economically, you’re not paying attention.

Government decided to take over the student loan business and now government can suffer the consequences of its actions.  I have no desire or intent to bail it out.

If this doesn’t make you angry as hell then I’m fairly certain which lever you’re pulling in November. 


Twitter: @McQandO

Why Obama’s war on oil speculators is economic poppycock (onions or corn?)

Economist Dr. Mark Perry has a series of posts at his blog Carpe Diem which makes the case that “speculators” play and key and positive role in commodities markets.

One of the more intriguing posts deals with onions and oil.  Oh, and corn.   Perry quotes a 2008 Fortune magazine article:

"Before the government starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today’s news: onions.

The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings."

The proof is in the charts.  The first chart compares the volatility in the onion market, in which futures trading was banned, with that of the oil market.



Compare the mean and standard deviation differences in the two markets.  Remember blue – no futures trading.  Red – futures trading.

So, you say, comparing onions and oil is like, well, comparing onions and oil!   OK, how about onions an corn.  Again the same difference applies.  No futures trading for onions but there is with corn.

Result?  The same:


The point, of course, is those futures contracts help moderate a market.  Or as Perry says:

The fact that the volatility of onion prices is so much greater than the volatility of corn prices lends further statistical support to the notion that markets with futures trading like corn have lower price volatility than markets without futures contracts like onions.

Bingo.  So, the President’s war on “oil speculators” is an obvious distraction.  But here’s the other side of that – if successful, you may end up seeing oil act like onions.  Is that something most of us would prefer?  Given these facts, it seems the height of folly to attempt to regulate or ban futures trading in oil, doesn’t it?

A few more charts to finish the point.  First, futures trading in natural gas:


If oil speculation (or, as implied, greed) is the cause of rising oil prices, why aren’t natural gas prices rising as well in futures trades (not as “greedy”)? 

In fact, it is because of “speculators” that we’ve seen the price of natural gas go down.  So futures markets do what?  They react to market signals on supply and demand.  What this tells us is we most likely have an over abundance of natural gas.

So what does the market do? It adjusts the price to the reality of the supply v demand – in this case, the price goes down.  And it also does things like this:


When natural gas price were up and oil prices down, more drilling rigs were allocated by those markets to natural gas.  As oil prices have risen dramatically recently, while natural gas prices have fallen, there’s been just as dramatic a shift in the allocation of drilling rigs from natural gas to oil.

The success in the natural gas sector has driven supply up while demand has yet to increase proportionately.  Meanwhile, we’d had an abundant supply of oil, which has now become very tight (geopolitics, folks – governments at work and war) driving up the price of crude.  The market is reacting.

And as it reacts, guess what?


Crude futures are down as they obviously see future supply growing as the market adjusts and reacts.  All driven by “speculators” who are, right now, in the middle of moderating the market.

So, as President Obama continues with his “blame the speculators” nonsense, you have a choice. 

Onions or corn?

Markets or bureaucrats?

PS – if you’d like to read some academic pieces on why “speculators” are a key to a market economy, read this.


Twitter: @McQandO

Economic Statistics for 24 Apr 12

The following statistics were released today on the state of the US economy:

Redbook is disappointing today, showing same-store, year-over-year retail sales up only 2.7%. In contrast to Redbook, ICSC-Goldman shows a 0.8% increase in sales over last week, with the year over rate rate up 3.6%.

New homes in March were sold at a 328,000 unit annual rate. This was slightly less than expected but was offset by large upward revisions to prior months.

The Case-Shiller Home Price composite 20 city index rose 0.2% last month, following a revised 0.1% dip the prior month. Home prices keep bouncing along the bottom. Meanwhile, the FHFA reports house prices in February rose 0.3%, following a 0.4% decline in January.

The Consumer Confidence Index fell one full point in April, to 69.2, mainly on falling income expectations.

The State Street Investor Confidence Index is down a sizable 3.9 points this month to 87.7, indicating falling confidence among institutional investors.

While manufacturing has been weakening according to other data, the Richmond Fed’s Manufacturing Index rose 7 points to 14.

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